Case Company allocates $5.00 overhead to each unit produced. The company uses a plantwide overhead rate with machine hours as the allocation base. Given the amounts below, how many machine hours does the company expect in department 2?
$$\begin{array} { l c c }
\text { Estimated: } & \text { Department 1 } & \text { Department 2 } \
\text { Manufacturing overhead costs } & \$ 250,000 & \$ 150,000 \
\text { Direct labor hours } & 8,000 \mathrm { DLH } & 12,000 \mathrm { DLH } \
\text { Machine hours } & 55,000 \mathrm { MH } & ? \mathrm { MH }
\end{array}$$

Question

Case Company allocates $5.00 overhead to each unit produced. The company uses a plantwide overhead rate with machine hours as the allocation base. Given the amounts below, how many machine hours does the company expect in department 2?
$$\begin{array} { l c c } 
\text { Estimated: } & \text { Department 1 } & \text { Department 2 } \
\text { Manufacturing overhead costs } & \$ 250,000 & \$ 150,000 \
\text { Direct labor hours } & 8,000 \mathrm { DLH } & 12,000 \mathrm { DLH } \
\text { Machine hours } & 55,000 \mathrm { MH } & ? \mathrm { MH }
\end{array}$$

Quizplus · Accepted Answer

The plantwide overhead rate is $5.00 per machine hour. The total estimated manufacturing overhead costs are $400,000 ($250,000 + $150,000). Therefore, the company expects to use 80,000 machine hours in total (400,000 / 5.00). Since department 1 is expected to use 55,000 machine hours, department 2 must be expected to use 25,000 machine hours (80,000 - 55,000).

Case Company Allocates $5 A) 25,000 MH